Subsequent to year 2014, the first half of year 2015 proved to be a challenging period for Ukraine’s economy, its banking system and Oschadbank in particular. Complicated economic and political environment driven by the hostilities in the East of Ukraine led to very adverse operating conditions.
Despite hard times, Oschadbank remains a solid, stable and reliable institution for its customers and partners.
Please find below the main financial highlights in brief.
Statement of financial position
- Gross loan book slightly increased by 6.8% as of 30 June 2015 driven by UAH devaluation. During 6m2015 net outflow of the loans to customers comprised UAH 6.5 bln (6m2014: UAH 3.4 bln inflow) due to further deterioration of economic conditions (drop in GDP, rising inflation etc.);
- Naftogaz remains the largest borrower of the bank with 15% (2014: 16%) stake in the total gross loan book as of 30 June 2015. Considering the recovery strategy of Naftogaz aimed at achieving positive balance in its activities in accordance with the Memorandum concluded between the IMF and the Government of Ukraine, the Ministry of Finance of Ukraine, and the NBU, Oschadbank extended the final maturity date under the loans to Naftogaz to June 2020 with the same interest rates;
- Allowance for impairment losses for loans to customers picked up by 47.8% due to worsening servicing quality of the bank’s loan portfolio following further deterioration of economic conditions as well as translation differences under loans nominated in foreign currency. As at 30 June 2015 and 31 December 2014 NPLs constituted 24% and 18% of the total loan portfolio, before allowance for impairment losses, respectively, the same ratio excluding loans granted to the customers of the Crimean Republican Branch – 13% and 7%. Oschadbank continues to follow a conservative approach to the accrual of allowance for impairment losses. Loss allowance to loans ratio comprised 35.3% and 25.5%. as of 30 June 2015 and 31 December 2014, respectively;
- Customer accounts grew by 25.1% or UAH 14.1 bln (12.9% net of FX effect), this was in contrast to general market trend, proving high level of client confidence in the Bank. UAH devaluation was another factor that influenced the customer accounts balances nominated in foreign currency. The growth in customer accounts led to increase in the amounts Due from banks from UAH 8.0 to 22.1 bln;
- Amounts of eurobonds, other borrowed funds and subordinated debt grew together by 32.1% due to UAH devaluation. During 6m2015 bank kept these liabilities at the constant level;
- Due to above mentioned negative impact of increased allowance and devaluation of local currency the Bank’s equity decreased to UAH 9.8 bln (2014: UAH 19.2 bln). Nevertheless, CAR and Tier 1 ratio remained higher than the system’s average level – 9.23% and 8.65% respectively (18.57% and 17.97% as of 2014YE respectively). As of 30 June 2015 the Bank complied with all regulatory requirements.
- Net interest income before provision comprised UAH 2.7 bln which is 12.9% lower than during 6m2014. It is caused, on the one hand, by the increase of liabilities due to revaluation of foreign currency nominated liabilities (first of all eurobonds, other borrowed funds, subordinated debt) and growth of amount of customer accounts, and, on other hand, increase of low margin amounts due from banks rather than loans to customers;
- Rapid growth of provision for impairment losses on the interest bearing assets from UAH 0.6 to 8.2 bln is caused mainly by the increase of provision under loans granted to customers due to further deterioration of economic situation;
- For the six months ended 30 June 2015, UAH devaluated significantly against major world currencies, which compared to the prior reporting period, led to 4 times increase in negative translation differences amounts;
- Due to the reasons described above, the bank reported Net loss of UAH 9.6 bln.
As announced in March 2015 by the Ministry of Finance of Ukraine, certain of Oschadbank’s external indebtedness is within the perimeter of the reprofiling required under “Target 1” of the International Monetary Fund’s four-year USD 17.5 billion Extended Fund Facility for Ukraine. As a result, Oschadbank launched negotiations with an ad hoc committee of investors and reached an agreement on the reprofiling of eurobonds and subordinated loan, which comprised together 20.1% of its total assets as of 30 June 2015. Subsequent to the reporting period, Oschadbank completed the process of reprofiling of the eurobonds on the following terms:
- eurobonds maturing in 2016 reprofiled by increasing the coupon rate to 9.375% and extending the amortization schedule to 10 March 2023;
- eurobonds maturing in 2018 reprofiled by increasing the coupon rate to 9.625% and extending the amortization schedule to 20 March 2025.
On 14 September 2015, as a result of successful completion by the bank of the reprofiling process in respect of the eurobonds, Fitch Ratings assigned a long-term foreign currency rating of CCC to the bank. The process for implementation of agreed terms for reprofiling of the subordinated loan in cooperation with the ad hoc committee is ongoing.